While this figure may appear to be an underestimate, as it does not cover remittances facilitated through informal channels (e.g., through unofficial money transfer operators or carried out by relatives), it nonetheless holds significant implications for the Indonesian economy.

The funds remitted by overseas workers are typically allocated toward meeting essential family expenditures in their country of origin (e.g., food or housing) and enhancing household access to public services (e.g., healthcare or education). Hence, remittances play a pivotal role in poverty alleviation, stimulate national consumption and bolster investment, thereby facilitating economic growth in the workers' home country.

Although overseas workers generally send their wages on a regular basis, empirical evidence suggests that the remittance amount to their home country is contingent upon exchange rates and transaction costs.

Substantial appreciation in the currency of the migrant's home country, coupled with exorbitant transaction costs, may dissuade them from remitting money. This can decrease the inflow of funds to the nation, thereby having adverse effects on the economy.

In the context of Indonesian foreign workers, the cost of remitting money to Indonesia varies significantly based on their location. For instance, workers located in Singapore face transaction costs as low as S$5 for each remittance to Indonesia. Indeed, this amount seems insubstantial and should not be a problem for large-value remittances.

However, such an amount could be problematic for poor migrants who regularly send small remittances. On average, Indonesian migrant workers allocate 18 percent of their earnings to remittances sent back to their home country.

As an illustration, Indonesian workers in Singapore generally earn a monthly income of S$650, of which they send approximately S$117 back home each month. In this regard, the S$5 transaction fee accounts for 4.2 percent of the total amount being sent, which can be considered prohibitively high, especially when multiple beneficiaries require frequent money transfers.

Additionally, the transaction costs might be higher for Indonesians working in certain East Asian countries, such as Taiwan or Hong Kong, compelling them to turn to informal channels. One natural question that arises against this background is the potential role the government could play in tackling the challenges faced by overseas Indonesian workers.

A potential answer could be for the government to initiate peer-to-peer payment systems that accommodate seamless remittance for Indonesian migrants. However, some caveats need to be properly addressed in developing such a system.

First, transaction costs must be affordable for the majority of migrant workers. Ideally, a pro-rata mechanism could be used to ensure that workers pay a proportionate share of the costs corresponding to the value of their money transfer rather than a fixed amount.

Certain nations have implemented a payment model that allows remittances, such as the Unified Payment Interface (UPI) in India or M-Pesa in African countries. Brazil, through its Pix, a government-backed payment system, is also reported to have followed suit in facilitating international remittances.

Second, the payment system might adhere to the current exchange rates to prevent migrant workers from being subjected to inflated rates that diminish the amount received by the intended recipients.

Third, the payment system must be user-friendly to accommodate diverse migrant worker groups across various demographics (e.g., age or level of education).

Fourth, although Indonesian migrant workers are dispersed around the globe, it would be beneficial for the pilot phase to focus on specific countries where a substantial concentration of Indonesian migrants resides, such as Malaysia, Singapore, or Saudi Arabia, enabling a comprehensive evaluation of the system's effectiveness within these contexts.

Furthermore, while establishing a single payment system to facilitate streamlined remittances is paramount, several other factors warrant consideration. Among these, enhancing banking accessibility for recipients in Indonesia assumes significance, considering 95 million Indonesians remain unbanked.

Failure to address this issue may render the payment system futile, impeding senders from transferring funds to recipients lacking bank accounts. Equally essential is providing education to Indonesian migrant workers, emphasizing the importance of utilizing formal remittance channels.

This educational endeavor ensures that individuals can exercise their full rights while safeguarding themselves against the potential scams and financial losses inherent to resorting to informal methods.

Remittances from expatriate workers offer numerous virtues for the economy. For instance, compared with foreign direct investment, remittances are more stable and countercyclical with regard to the country's output.

Moreover, remittances are also regarded as being a more resilient source of funding in times of a crisis. As more workers resume their jobs due to the relaxation of COVID-19 restrictions, the flow of remittances will also experience a corresponding upturn.

After all, reducing costs associated with remitting the money should increase the inflow of remittances to Indonesia.

 ***

The writer is a trade analyst at the Trade Ministry in Jakarta, and a PhD candidate at the Faculty of Business, Swinburne University of Technology. The views expressed are his own.

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